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Understanding and Managing Variability of Financial Reports

The financial reports of economic entities creating using US GAAP, IFRS, and other such robust reporting schemes includes variability. 

This variability is an essential, characteristic trait of such reporting schemes and contributes to the richness, high-fidelity, and high-resolution of reported financial information. This variability is a feature of such reporting schemes.

Here is one example of such variability.  The FASB discusses variability as it relates to US GAAP in the conceptual framework, specifically Statement of Financial Reporting Concepts No. 6.  For example, on page 47, paragraph 77, you see:

(Click image for larger view)

That specific discussion relates to comprehensive income, but the same general idea applies to most aspects of a financial report.

As I said, this variability is not unique to the FASB and US GAAP, for example, if you look at IPSAS issued by the International Public Sector Standards Board you see the same ideas.

But "variability" does not mean "arbitrary" or "random".  Variability must be managed and controlled to keep it within proper limits.

There are "clusters" of acceptable, standard ways to create financial reports, not just one way.  I call these "clusters" by the term "pattern".  Here are examples of some of those clusters:

That is a good example of the variability within a financial report.

The Method of Implementing a Standard Digital Financial Report Using the XBRL Syntax is an approach to managing and controlling that variability.  There are other approaches to managing therefore controlling variability.  However, you cannot simply ignore the variability.

This method uses machine-readable business rules to "channel" and therefore control variability, keeping the variability within standard limits.  That keeps quality where it needs to be.  Rules enable things like preventing a user from using a concept meant to represent one thing from unintentionally being used to represent something different.

Managing variability is essential to representing the high-fidelity, high-resolution information that is contained in a financial report at the high-quality level necessary for such reports.

Posted on Tuesday, January 15, 2019 at 09:56AM by Registered CommenterCharlie in | CommentsPost a Comment

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